Corporación Acciona Energías Renovables, S.A.'s (BME:ANE) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Corporación Acciona Energías Renovables (BME:ANE) has had a rough month with its share price down 13%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Corporación Acciona Energías Renovables' ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How To Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Corporación Acciona Energías Renovables is:

13% = €789m ÷ €6.2b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.13 in profit.

See our latest analysis for Corporación Acciona Energías Renovables

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Corporación Acciona Energías Renovables' Earnings Growth And 13% ROE

To begin with, Corporación Acciona Energías Renovables seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 15%. This probably goes some way in explaining Corporación Acciona Energías Renovables' moderate 9.4% growth over the past five years amongst other factors.

As a next step, we compared Corporación Acciona Energías Renovables' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 29% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Corporación Acciona Energías Renovables fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Corporación Acciona Energías Renovables Efficiently Re-investing Its Profits?

Corporación Acciona Energías Renovables has a three-year median payout ratio of 30%, which implies that it retains the remaining 70% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Moreover, Corporación Acciona Energías Renovables is determined to keep sharing its profits with shareholders which we infer from its long history of four years of paying a dividend. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 45% over the next three years. Accordingly, the expected increase in the payout ratio explains the expected decline in the company's ROE to 5.1%, over the same period.

Conclusion

Overall, we are quite pleased with Corporación Acciona Energías Renovables' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.